- Q.After working for several
years as an employee, I recently headed out on my own
and began shopping around for liability insurance. Most
policies offer “occurrence” coverage,
but one company offers a “claims
made” policy that provides similar coverage
for less money. What’s the difference between
the two types of policies?
A.Scott
Smith, president of Stanford Insurance in
Salem, Ore., and a former builder, responds:
Both policies cover liability loss in the same way
during the coverage term; the big difference lies
in what happens after your coverage term expires. A
claims-made policy only pays claims presented to
the insurer during the term of the policy, or
within a specific term after its expiration. As
long as you keep this type of policy in force,
you’re covered; as soon as the policy
expires or is cancelled, your coverage ends. For
additional cost, some companies offer 30-day,
60-day, or 90-day tail coverage to continue
coverage for a short time after the policy has
expired, but this won’t help you if
there’s a lawsuit two years later.
Not many companies write claims-made policies,
which are designed to keep the price of insurance
down by limiting an insurance company’s
liability. Even the ones that do will often decide,
after one or two terms, that you qualify as a good
risk and will write an occurrence-based policy,
which costs slightly more but pays claims for
incidents that occur during the policy term even if
they’re filed many years later.